2018.06.2008:27:00UTC+00Philippine Central Bank Hikes Key Rates

The Philippine central bank on Wednesday raised its benchmark interest rate for the second straight month as inflation remains above the target.

The Monetary Board of the Bangko Sentral ng Pilipinas, led by Governor Nestor Espenilla, raised the key interest rate, which is the overnight reverse repurchase rate, by 25 basis points to 3.50 percent.

The interest rates on the overnight lending and deposit facilities were raised accordingly.

The bank had raised the reverse repo rate by a quarter point from a record low in May, which was the first such action in nearly four years.

Inflation expectations remained elevated for 2018 and that the risk of possible second-round effects from ongoing price pressures argued for follow-through monetary policy action, the bank said in a statement.

The monetary board said further policy action enables the central bank to reinforce its signal on safeguarding macroeconomic stability in the face of rising commodity prices and ongoing normalization of monetary policy in advanced economies.

The BSP said it is prepared to take further policy action as needed to achieve its price and financial stability objectives.

The bank expects inflation to average 4.5 percent this year, which was slightly slower than the 4.6 percent estimated previously. For 2019, the bank forecast inflation to slow to 3.3 percent.

Alex Holmes, an economist at Capital Economics, said the central bank will not rush to hike rates again as inflation is close to peaking.

Although inflation may creep up a little further over the next couple of months on the back of higher oil prices and another increase in tobacco duties, it should begin to fall by the end of third quarter, the economist added.